What Role Does Emotion Play In The Capital Investment Decision?
I have started authoring a new e-Book to share some market research data on the drivers of capital investment decisions. As part of the background for the eBook, I researched the role of emotion in business decision-making.
This is an area most economic development professionals associate with B2C efforts not B2B. The prevailing belief is that the capital investment decision is a rational process based on a cold-hearted financial assessment of a location’s deal package.
But, I had a number of personal conversations with both economic development professionals and site selectors at the IEDC Annual Conference in Houston and the recent Business Facilities LiveXchange meeting in Ft. Myers, that lead me to believe location decisions are no different than any other major business decision and emotion certainly plays an important role. I am not surprised. This finding is consistent with my 33-year career in the private sector and with the papers I found authored by psychologists on the topic of executive decision-making.
Some Interesting Findings
For the record, whenever possible I have tried to paraphrase the insights to be more directly relevant to economic development.
One paper I read suggested the relative weight of rational versus emotional considerations differ depending on the following –
- The conspicuousness of the investment.
- The complexity of the decision.
- The level of CEO (or Board of Directors) engagement with the decision.
- The level of risk (financial or reputational) attached to the decision.
- The level of scrutiny the decision will come under.
- The Company and Industry culture.
- The expertise of the decision maker.
- The personality of the decision maker.
Clearly then, making a location decision can carry risk for a CEO. In most non-retail cases, this may be a once in a career decision. As a result, it will likely carry significant perceived personal risk and the CEO will want to ensure her/his risk of making a wrong decision is minimized.
Another paper reviewed the work of Victor Schwab. Victor identified 40 key emotional drivers for decision-making. I have “cherry picked” those I felt are most relevant to site selection.
People want to gain –
- Praise from others
- Pride of accomplishment
- Personal prestige
People want to save –
When you think about the projects you are working on, how many of Victor’s emotional drivers can you readily observe? My guess is several at least. I think his list of what people want to save is likely spot on for most capital investment deals. The key is to figure out a way to address the emotional drivers throughout the negotiation process.
In one paper I read, the author talked about the feature-benefit-emotion chain. I was drawn to this discussion because I have explored the feature-benefit relationship in a prior blog post. The chain was described as having 4-levels: 1) features, 2) functional benefits, 3) higher order benefits, and 4) emotional benefits. I could easily see this chain playing out in discussions with potential capital investors. But, I also suspect many times we don’t make it past describing the functional benefits of our community assets. Key then would be to figure out how to paint a picture of the higher order and emotional benefits so we can make a personal connection with the evaluation team and CEO and positively influence the final location decision. The way to figure out what the higher order and emotional benefits of an asset (or asset package) are is a process called laddering.
The author concludes by observing – “People will tell you about features. And, they will discuss functional benefits when you ask them. But, people will rarely talk about inner feelings, emotions and beliefs, unless you know how to draw them out. Yet, emotions drive buying [investment] decisions. They are the chords you strike to get attention and sell products [community].” This conclusion reminded me how important it is to master questioning skills if you want to be successful as an economic developer. You have to dig to understand the emotional drivers of a project and they will differ project to project.
The last learning I will share in this post (yes, I plan to do at least one more post on this subject before the eBook is available) is from the field of psychology. I always like to try and understand the reason why certain things are true.
In the 1960’s, Paul McLean studied how the human brain evolved. His research suggests we actually have 3 brains.
- The old brain – Paul called this the reptilian brain. It operates on instinct and plays a key role in our survival. For example, this brain controls your body’s process of breathing, your heart beating, your digestion, etc. It is a pretty important brain.
- The mid brain – This is your limbic system and controls your emotions, memories, attention. It is also your brain’s motherboard for processing information from your five senses.
- The new brain – This is your neocortex and it manages rational thinking, language and speech processing.
According to the author of this paper about Paul’s work, the unconscious (mid brain), where all emotions are stored, controls human decision-making. “Whether is involves B2C or B2B decisions, adding emotions will strengthen the why part of the marketing or selling process, especially when you are explaining what you believe in, which will breed a sense of trust and confidence.”
The role of emotion in making a capital investment decision seems pretty logical (at least according to my new brain). In fact, given the financial magnitude and importance of a location decision, to believe emotion plays no role seems illogical.
In my next post on this subject, I am going to share what I am learning about how to leverage emotion to help you make your community even more competitive for capital investment deals. My guess is a lot of the information will “feel” right even if you have never considered what you do through the lens of emotion before.
In the meantime, please comment on this post. Feel free to ask a question to improve your understanding. It will undoubtedly help me better think through how to organize information in the eBook.
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